08/26/2014 04:32 pm ET Updated Oct 26, 2014

3 Things to Consider Before You Go Into Student Loan Debt


By Mike Goldstein, Content Writer at Credit Karma

Do all those back to school sales have you ready to hit the classroom? If you're thinking about furthering your education, you deserve to be commended. Education is a wonderful thing, and (in theory, at least) the more degrees you have the more in demand you'll be professionally.

The picture gets complicated by the potential of student debt, though. College loans are the second most common type of debt in the United States, and the totals continue to balloon. Credit Karma members with student debt have an average of $29,000*, and those lofty figures can take a serious toll on one's financial health. A recent report by the Federal Reserve shows that 46 percent of those with student loans had to cut back on other spending in order to pay their bills, with 11 percent reporting that they cut back "a lot."

For many, the decision to go to school is also a decision to go deeper into debt. With that fact in mind, take a second to pause and consider these three factors before chasing after that next degree.

1. Will it be worth it?

This is the most basic question that every student loan borrower should ask themselves: Will my college education be worth all that debt?

If it's an undergraduate degree that we're talking about, the answer may be "yes." The Pew Research Center recently found that millennials with college degrees out-earned their peers by about $17,500 per year. The employment and salary gap held true even in industries that don't traditionally require a degree, like service jobs, so if you're deciding between a high school diploma and an undergraduate degree, the debt may be worthwhile.

If you're considering a post-graduate degree, or if you're looking to earn your diploma from an expensive, private university, the decision may be more complicated. The consequences of furthering your education will ultimately come down to the specifics of your life situation. While it may be difficult, sitting down and attempting to project the hypothetical costs and benefits of more college debt is crucial. Will your salary rise in the short-term? In the long-term? How do those increased earnings compare to the additional financial burden of student debt? Remember that your loan will likely stick around for a while, so this isn't just a decision for the present.

You might also decide your major or area of focus based on future value. In the aforementioned Federal Reserve study, 63 percent of engineering graduates felt their degrees were worth the cost, compared to only 26 of social science majors. Whether you feel it is worthwhile to go into debt or not could depend on the specific focus of your education and degree.

2. What's my repayment strategy?

Before you take on a loan, make a plan for how you'll pay it off. This is especially important for undergraduates going to college for the first time. College can feel like such a natural rite of passage that a live-for-the-moment mentality may develop. That mentality can get ugly once you're $80,000 in debt and having a hard time staying afloat.

Make a goal for yourself regarding when you'd like to have all your debt paid off. Consider your expected earnings (while keeping in mind that those earnings won't always be what you'd hoped for) and set out on a scheduled path toward financial freedom. If you're having a hard time wrapping your mind around the amount of debt you might be facing, check out free online resources, like Credit Karma's debt repayment calculator, to figure out where you're headed.

If you're already in debt and headed back for more, consider how your new student debt will coexist with your other obligations. With the addition of a post-graduate degree, it's reasonable to assume that you have a higher future salary in mind. Still, take the time to consider whether or not your new burdens will keep you from paying off your mortgage or your car loan. If you do anticipate having competing obligations, figure out how you'll prioritize one set of payments against the others.

3. Do I need private funding? How's my credit?

If you're looking to borrow money or open a new credit card, your credit health is usually going to matter. In contrast, federal student loans are generally need-based, meaning that your credit history won't typically interfere with your ability to get the money you need at the same terms as your fellow students. However, if federal student loans aren't available to you or if you need more money than federal student loans can provide, you may need to seek funding from a private institution. Here, a healthy credit file could make an enormous difference in loan size, interest rates and term length.

Before you apply for a private loan, you might want to consider reviewing your credit report and disputing any incorrect negative marks. Once you've taken out a loan and started repayment, be mindful of how your diligence (or lack thereof) will affect your credit health.

Bottom Line

If you're thinking about pursuing a new degree, financially planning for the future is key before you take on any new debts. Weigh the costs and benefits, make a plan for the future and check up on your credit health before you get to learning.

*Calculations are based on data from 2,407,729 Credit Karma members who checked their credit in May 2014.


This content is for entertainment and information purposes only. The opinions expressed in this piece are those of the authors themselves, and not necessarily Credit Karma, its affiliates, or its business partners. Efforts have been made to present information that is up to date and accurate at the time of its initial publication. However, neither the author nor Credit Karma make any guarantees about the accuracy or completeness of the information provided.

About the Author: is a Content Writer at Credit Karma. Since joining the team in June 2013, he's been delivering the financial know-how on the daily.

States With Highest Average Student Debt - TICAS - Class Of 2012